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Confidence Up, Despite Manufacturing Headwinds

Posted on December 1, 2015

Confidence among Massachusetts employers improved slightly during November, despite growing concerns among employers about the global economy.

BCI.November.2015The Associated Industries of Massachusetts Business Confidence Index rose 1.3 points in November to 56.9, almost exactly where it stood a year before (56.8).

“The “hidden trend’ behind that pattern is a divergence in confidence levels between manufacturers and other employers,”  said Raymond G. Torto, Chair of AIM’s Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.   

“Our state’s manufacturing sector, which relies heavily upon International demand for its world-class products, is up against a strong dollar and weak conditions in all its major export markets ” China, Japan, Canada, and Western Europe,” Torto went on.

“Domestic demand is down as well because of global conditions and large inventories. In March, manufacturers were almost as confident as other employers, but the confidence gap has grown significantly since then.” Torto noted that the manufacturing sector is over-represented in AIM’s survey, but that it plays a vital part in the Massachusetts economy. “If the sector continues to struggle in 2016, other sectors will feel the repercussions,” he said, “especially in regions of the state with concentrations of manufacturing industries.”    

AIM’s Business Confidence Index has been issued monthly since July 1991 under the oversight of the Board of Economic Advisors. Presented on a 100-point scale on which 50 is neutral, the Index attained a historical high of 68.5 in 1997 and 1998; its all-time low was 33.3 in February 2009. 

Massachusetts Conditions Seen Positive, U.S. Not So Much

The sub-indices based on selected questions or respondent characteristics were mostly up from October to November, but mixed compared to November 2014. The biggest gainer was the Massachusetts Index,

assessing business conditions within the Commonwealth, which added 4.2 points on the month to 58.3. The U.S. Index of national conditions, meanwhile, edged up three-tenths to 51.2.

“The state indicator has nearly recovered to its early 2015 readings, which were the best since 2004,” said BEA member Michael A. Tyler, CFA, Chief Investment Officer, Eastern Bank Wealth Management. “What’s more, the state indicator has led its national counterpart consistently since the recovery began in 2009, and the gap is widening. Today, the national indicator has fallen to near neutral, even as GDP growth has begun to re-accelerate.”   

The Current Index, tracking employers’ assessment of existing business conditions, was up nine-tenths to 55.8, while the Future Index, measuring expectations for the next six months, rose 1.8 to 58.0. “The Current Index is up fractionally compared to last November, while the Future Index is fractionally lower,” Tyler remarked. “Employers, including manufacturers, do however expect business conditions to improve modestly over the next six months.”

Manufacturers Continue to Face Challenges

The three sub-indices related to survey respondents’ own companies were mixed in November.

The Company Index, which assesses the overall situations of their operations, added seven-tenths to 58.3 and the Sales Index gained a point to 59.27, but the Employment Index was off three-tenths to 54.9.

“The survey results on employment were solidly positive overall, but the divergence among respondentsis striking,” noted Sara L. Johnson, Senior Research Director of Global Economics at IHS Global, a BEA member. “Among manufacturers, and outside Greater Boston where manufacturing is a dominant sector, responses on employment barely tilted positive, whereas employers in other sectors and the Boston area as a whole were much more optimistic about job creation.”    

In November, Johnson said, overall confidence was higher among employers within Greater Boston (58.2, +2.6) than among those outside the metropolitan area (54.6, -1.4); and manufacturers continued to be much less confident (52.0, +0.1) than other employers (61.3, +1.6). “While “traditional’ manufacturers continue to confront the greatest challenges, technology companies are by no means immune to current adverse conditions affecting the sector,” she pointed out. By employer size, those with 25 or fewer employees were only slightly less confident than larger companies.